Both Dairy Bills Protect Margins

An analysis of the Dairy Security Act (DSA) and the so-called Goodlatte-Scott (G-S) amendment to it will protect dairy farmer margins.

The analysis was released this morning by dairy economists from Michigan State, Ohio State and the Universities of Minnesota and Wisconsin.

The difference between the two bills is that the Dairy Security Act contains a dairy market stabilization program (DMSP), aka supply management, while Goodlatte-Scott does not. "The DMSP is not likely to provide long-term obstacles to growth for participating farms with an aggressive growth plan unless generous margin insurance induces a long-term oversupply of milk," say the economists.

"The provisions of G-S’s effective catastrophic margin insurance for aggressively growing farms is limited due to the fixed production history. However, more complete margin risk protection may still be possible using private risk markets to complement government-provided insurance," they say.

"The long-term impacts of these program on the growth of milk supply, dairy exports, and liquidity of private dairy risk markets are among important open questions we do not attempt to address," they says.

The analysis also does not address government costs, which is beyond the scope of the study. The National Milk Producers Federation contends G-S could have run-away costs because margins will be protected and while there are no brakes on milk supplies.

Mark Stephenson, a University of Wisconsin dairy economist involved in the study, says this:

"In some regards, GS may not be any worse than DSA for program costs because the production base is fixed for the life of the farm bill (that isn't the case for DSA). Many farms would "outgrow" their production base over the course of the bill and that also provides a check on "run-away" program costs."